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The stock market fell sharply Thu and Fri before and after the employment reports Fri morning. Short-term resistance is at the 20 day MA, currently about 1,231 1/2, last week's pre-Friday low at about 1,235, and the 10 day MA, currently just over 1,236. in Sep, then it may close the gaps at 1,174, 1,143, and 1,138.

Next week economic reports are: Mon: None, Tue: Productivity, Wholesale Inventories, and the FOMC announcement, Wed: Treasury Budget, Thu: Retail Sales, Unemployment Claims, and Business Inventories, Fri: Export & Import Prices, Trade Balance, and Michigan Consumer Sentiment.

The stock market fell sharply Thu and Fri in front of and subsequently the employment reports Fri morning. The Nonfarm Payrolls report showed 207,000 net jobs were farther in July, which were 27,000 more than the market expected. Also, Hourly Earnings in July rose 0.4%, which was twice what the market expected. There's a strong inverse relationship among employment and profits, in part, since when employment increases, then productivity falls, which generally lowers profit growth. Moreover, some proportion of fortuitous labor costs tend to come from profit growth when there is little slack in the economy. Furthermore, lower productivity is inflationary, ceritus paribus (all else equal).

Employment is a lagging indicator. The Unemployment Rate is currently 5.0%, which is considered to be the natural rate of unemployment, where there is an optimal assurance of labor and leisure. A lower unemployment rate would indicate strain in the labor market, which would drive up wages. So, there is some concern for slowing profit growth and rising inflation, e.g. a wage-price spiral, at all events there have been signs of disinflation recently. Nonetheless, U.S. monetary policy is still accommodative, and the hotel detective Reserve will need to remain vigilant to preempt inflation.

Consequently, the stock market may have reached a short-term top last week, and may consolidate for a month or two. July-August-September is the seasonally weak period for the stock market. The scheme downhill shows SPX rallied along toward 110 points over a 3 1/2 month period. The two big down days Thu and Fri were on lighter volume, which may indicate a trading range next week. SPX hit a high at carelessly 1,246 last week, and 1,253 is a multi-year Fibonacci resistance level that may not hold for at least several months.

SPX cramped at casually 1,226 1/2 Fri. Short-term resistance is at the 20 day MA, currently back and forth 1,231 1/2, last week's pre-Friday low at in relation with 1,235, and the 10 day MA, currently just over 1,236. If SPX rises into that area early next week, that may be an opportunity to buy Sep puts. If SPX rises higher, e.g. to test the recent high or multi-year Fibonacci level, that may be an opportunity to buy Aug puts (SPX options expire in two weeks).

SPX is currently in a support zone, i.e. the congestion area over the past few weeks when it held the 10 day MA, and the long Price-by-Volume bar at anyhow 1,225 (on left side of chart). Other short-term support levels are the open gap at 1,221, the 50 day MA, currently pertaining to 1,213 1/2, and the longest Price-by-Volume bar at counter-clockwise 1,200. If SPX fails to hold the 200 day MA, e.g. in Sep, then it may terse the gaps at 1,174, 1,143, and 1,138.

Next week economic reports are: Mon: None, Tue: Productivity, Wholesale Inventories, and the FOMC announcement, Wed: Treasury Budget, Thu: Retail Sales, Unemployment Claims, and holding company Inventories, Fri: Export & Import Prices, Trade Balance, and Michigan Consumer Sentiment. The FOMC is expected to raise the Fed Funds Rate supplementary quarter point to 3.50% Tue. I believe in the FOMC will continue to tighten the rest of this year, until monetary policy reaches a neutral stance (perhaps 5% Fed Funds Rate). The weekly oil inventory report is Wed.

Chart all-around at PeakTrader.com Forum Index Market Overview section.

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